Social Capital’s Chamath Palihapitiya says ‘we need to return to the roots of venture investing’

In the first of many annual letters Chamath Palihapitiya will be penning as part of his firm’s new era as a technology holding company, the founder of Social Capital criticized the venture capital industry.

After highlighting the latest trends within VC — i.e. SoftBank’s Vision Fund, private equity activity in VC deals and inflated valuations — Palihapitiya divulged the asset class’s biggest problems. A copious amount of capital is flowing through the industry and VCs have an insatiable appetite for “unicorn status.” As a result, investors are paying more and more for equity in startups at all stages, hurting both startup employees and limited partners, who ultimately have to foot the bill.

“The dynamics we’ve entered is, in many ways, creating a dangerous, high stakes Ponzi scheme,” Palihapitiya, a former Facebook executive, wrote. “Highly marked up valuations, which should be a cost for VCs, have in fact become their key revenue driver. It lets them raise new funds and keep drawing fees.”

LPs and startup employees are suffering as a result of VC greed. Why? According to Palihapitiya, LPs are seeing delayed returns and startup employees are being offered stock options at inflated prices to match a company’s sky-high valuation.

“VCs bid up and mark up each other’s portfolio company valuations today, justifying high prices by pointing to today’s user growth and tomorrow’s network effects. Those companies then go spend that money on even more user growth, often in zero-sum competition with one another. Today’s limited partners are fine with the exercise in the short run, as it gives them the markups and projected returns that they need to keep their own bosses happy.”

“Ultimately, the bill gets handed to current and future LPs (many years down the road), and startup employees (who lack the means to do anything about the problem other than leave for a new company, and acquire a ‘portfolio’ of options.)”

Social Capital has had a rough go of it lately. The firm made the call to stop accepting outside capital about a month ago, with plans to invest off a “multi-billion dollar balance sheet of internal capital only.” That decision followed a string of high-profile exits that cemented the supposition that Social Capital, as we’ve known it, was over.

In his new role as a leader of a tech holding company, not a VC firm, Palihapitiya claims to have the solution to the aforementioned problem plaguing the venture and startup industry: “Return to the roots of venture investing.”

“The real expense in a startup shouldn’t be their bill from Big Tech but, rather, the cost of real innovation and R&D,” he said. “The second is to break away from the multilevel marketing scheme that the VC-LP-user growth game has become. At Social Capital, we did this by actively shifting away from funds and LPs to rely only on our own permanent capital moving forward.”

“Are we crazy to reject tens of millions of dollars a year in fees? We think not, and we believe it’s time to wait patiently as the air is slowly let out of this bizarre Ponzi balloon created by the venture capital industry.”

You can read the full letter here.

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Twitter tests homescreen button to easily switch to reverse chronological

Twitter is digging one of its most important new features out of its settings and putting it within easy reach. Twitter is now testing with a small number of iOS users a homescreen button that lets you instantly switch from its algorithmic timeline that shows the best tweets first but out of order to the old reverse chronological feed that only shows people you follow — no tweets liked by friends or other randomness.

Twitter had previously buried this option in its settings. In mid-September, it fixed the setting so it would only show a raw reverse chronological feed of tweets by people you follow with nothing extra added, and promised a more easily accessible design for the feature in the future. Now we have our first look at it. A little Twitter sparkle icon in the top opens a menu where you can switch between Top Tweets and Latest Tweets, plus a link to your content settings.

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GM looks to cut costs by offering buyouts to 18,000 employees

General Motors has offered voluntary buyouts to 18,000 salaried employees in North America who have at least 12 years experience, as the automaker looks to cut costs all while investing in its electric and autonomous future.

The company has described this as a proactive measure aimed at preparing for coming headwinds such as  slow sales in North America and China, commodity prices and tariffs.

But it’s just as much about preparing for the future. The company has been undergoing a transformation over the past four to five years, ditching expensive, money-losing programs like the Opel brand in Europe, and investing more into electrification and autonomous vehicle technology.

And it’s not wasting any time.

GM is giving these employees until Nov. 19 to decide whether they’ll take the buyout offer. Those who accept will receive severance beginning Feb. 1, 2019.

About 36% of the company’s 50,000 employees in North America are eligible for the buyout. A GM spokesman declined to say how many employees it expected to take the buyout, except to predict that it was unlikely the number would be anywhere close to 18,000.

GM has been on a three-year $6.5 billion cost-cutting mission that it expects to hit by the end of the year. GM CFO Dhivya Suryadevara said in the company’s earnings call Wednesday that GM had made $6.3 billion in cost-saving measures as of the end of the third quarter.

GM’s cost-cutting measures have happened in parallel with its investments and commitments to electrification and autonomous technology. GM acquired Cruise Automation for $1 billion in 2016. Earlier this year, the automaker said it would invest another $1.1 billion into its self-driving unit as part of bigger deal with Softbank. Cruise Holdings has said it will launch a commercial autonomous vehicle ride-hailing service in 2019.

It has also focused on hiring more software engineers, and will continue to add those kinds of jobs even as the buyouts begin, according to GM.

GM’s plan to launch 20 new all-electric vehicles globally by 2023 and increase production of the Chevy Bolt. At an event in September, GM chairman and CEO  Mary Barra  said the company is poised to build more all-electric vehicles as improvements continue at its recently expanded battery lab and a new LG Electronics plant in Michigan comes online.

The LG Electronics facility in Hazel Park will start making battery packs this fall to supply GM’s Orion Assembly Plant, where the automaker builds the all-electric Chevrolet Bolt.

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GM looks to cut costs by offering buyouts to 18,000 employees

General Motors has offered voluntary buyouts to 18,000 salaried employees in North America who have at least 12 years experience, as the automaker looks to cut costs all while investing in its electric and autonomous future.

The company has described this as a proactive measure aimed at preparing for coming headwinds such as  slow sales in North America and China, commodity prices and tariffs.

But it’s just as much about preparing for the future. The company has been undergoing a transformation over the past four to five years, ditching expensive, money-losing programs like the Opel brand in Europe, and investing more into electrification and autonomous vehicle technology.

And it’s not wasting any time.

GM is giving these employees until Nov. 19 to decide whether they’ll take the buyout offer. Those who accept will receive severance beginning Feb. 1, 2019.

About 36% of the company’s 50,000 employees in North America are eligible for the buyout. A GM spokesman declined to say how many employees it expected to take the buyout, except to predict that it was unlikely the number would be anywhere close to 18,000.

GM has been on a three-year $6.5 billion cost-cutting mission that it expects to hit by the end of the year. GM CFO Dhivya Suryadevara said in the company’s earnings call Wednesday that GM had made $6.3 billion in cost-saving measures as of the end of the third quarter.

GM’s cost-cutting measures have happened in parallel with its investments and commitments to electrification and autonomous technology. GM acquired Cruise Automation for $1 billion in 2016. Earlier this year, the automaker said it would invest another $1.1 billion into its self-driving unit as part of bigger deal with Softbank. Cruise Holdings has said it will launch a commercial autonomous vehicle ride-hailing service in 2019.

It has also focused on hiring more software engineers, and will continue to add those kinds of jobs even as the buyouts begin, according to GM.

GM’s plan to launch 20 new all-electric vehicles globally by 2023 and increase production of the Chevy Bolt. At an event in September, GM chairman and CEO  Mary Barra  said the company is poised to build more all-electric vehicles as improvements continue at its recently expanded battery lab and a new LG Electronics plant in Michigan comes online.

The LG Electronics facility in Hazel Park will start making battery packs this fall to supply GM’s Orion Assembly Plant, where the automaker builds the all-electric Chevrolet Bolt.

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Watch this little robot transform to get the job done

Robots just want to get things done, but it’s frustrating when their rigid bodies simply don’t allow them to do so. Solution: bodies that can be reconfigured on the fly! Sure, it’s probably bad news for humanity in the long run, but in the meantime it makes for fascinating research.

A team of graduate students from Cornell University and the University of Pennsylvania made this idea their focus and produced both the modular, self-reconfiguring robot itself and the logic that drives it.

Think about how you navigate the world: If you need to walk somewhere, you sort of initiate your “walk” function. But if you need to crawl through a smaller space, you need to switch functions and shapes. Similarly, if you need to pick something up off a table, you can just use your “grab” function, but if you need to reach around or over an obstacle you need to modify the shape of your arm and how it moves. Naturally you have a nearly limitless “library” of these functions that you switch between at will.

That’s really not the case for robots, which are much more rigidly designed both in hardware and software. This research, however, aims to create a similar — if considerably smaller — library of actions and configurations that a robot can use on the fly to achieve its goals.

In their paper published today in Science Robotics, the team documents the groundwork they undertook, and although it’s still extremely limited, it hints at how this type of versatility will be achieved in the future.

The robot itself, called SMORES-EP, might be better described as a collection of robots: small cubes (it’s a popular form factor) equipped with wheels and magnets that can connect to each other and cooperate when one or all of them won’t do the job. The brains of the operation lie in a central unit equipped with a camera and depth sensor it uses to survey the surroundings and decide what to do.

If it sounds a little familiar, that’s because the same team demonstrated a different aspect of this system earlier this year, namely the ability to identify spaces it can’t navigate and deploy items to remedy that. The current paper is focused on the underlying system that the robot uses to perceive its surroundings and interact with it.

Let’s put this in more concrete terms. Say a robot like this one is given the goal of collecting the shoes from around your apartment and putting them back in your closet. It gets around your apartment fine but ultimately identifies a target shoe that’s underneath your bed. It knows that it’s too big to fit under there because it can perceive dimensions and understands its own shape and size. But it also knows that it has functions for accessing enclosed areas, and it can tell that by arranging its parts in such and such a way it should be able to reach the shoe and bring it back out.

The flexibility of this approach and the ability to make these decisions autonomously are where the paper identifies advances. This isn’t a narrow “shoe-under-bed-getter” function, it’s a general tool for accessing areas the robot itself can’t fit into, whether that means pushing a recessed button, lifting a cup sitting on its side, or reaching between condiments to grab one in the back.

A visualization of how the robot perceives its environment.

As with just about everything in robotics, this is harder than it sounds, and it doesn’t even sound easy. The “brain” needs to be able to recognize objects, accurately measure distances, and fundamentally understand physical relationships between objects. In the shoe grabbing situation above, what’s stopping a robot from trying to lift the bed and leave it in place floating above the ground while it drives underneath? Artificial intelligences have no inherent understanding of any basic concept and so many must be hard-coded or algorithms created that reliably make the right choice.

Don’t worry, the robots aren’t quite at the “collect shoes” or “collect remaining humans” stage yet. The tests to which the team subjected their little robot were more like “get around these cardboard boxes and move any pink-labeled objects to the designated drop-off area.” Even this type of carefully delineated task is remarkably difficult, but the bot did just fine — though rather slowly, as lab-based bots tend to be.

The authors of the paper have since finished their grad work and moved on to new (though surely related) things. Tarik Tosun, one of the authors whom I talked with for this article, explained that he’s now working on advancing the theoretical side of things as opposed to, say, building cube-modules with better torque. To that end he helped author VSPARC, a simulator environment for modular robots. Although it is tangential to the topic immediately at hand, the importance of this aspect of robotics research can’t be overestimated.

You can find a pre-published version of the paper here in case you don’t have access to Science Robotics.

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Some law enforcement drones are dropping out of the sky

The U.K.’s Civil Aviation Authority is cautioning police departments and other emergency services to suspend operations of a specific drone model after some of the devices lost power unexpectedly and fell while in flight.

The Civil Aviation Authority (CAA) safety warning applies to DJI Matrice 200 series drones, used by some emergency services in the U.K. The failures were first reported by West Midlands police department, though law enforcement in Norfolk, Devon, Cornwall and the West Midlands also uses DJI drones. Devon and Cornwall have grounded two affected drones out of their fleet of 20, according to the BBC.

According to the CAA, “A small number of incidents have been recently reported where the aircraft has suffered a complete loss of power during flight, despite indications that there was sufficient battery time still remaining.” No injuries have been reported, despite “immediate loss of lift with the remote pilot unable to control its subsequent flight path.”

While no reports have surfaced in the U.S. so far, a study by Bard College noted that 61 U.S. public safety agencies (law enforcement, fire departments, EMS, etc.) use the specific model of Mavic drone affected. Collectively, drone models by DJI dominate the space, though the Matrice is not the most popular model.

The manufacturer has responded to the reports, urging Matrice operators to push a firmware update that resolves the issue. “When prompted on the DJI Pilot App, we recommend all customers to connect to the internet on the app or DJI Assistant 2 and update the firmware for their aircraft and all batteries to ensure a safe flight with their drone,” the company wrote in a product warning.

DJI faced a similar issue last year when some of its DJI Spark consumer-grade drones suddenly lost power and fell from the sky.

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Influencer marketing startup Mavrck raises another $5.8M

Mavrck has raised another $5.8 million in funding, bringing its total raised to $13.8 million.

When the company raised its Series A back in 2015, it was focused on helping brands work with “micro-influencers” who were already using their products. Now it describes itself as an “all-in-one” influencer marketing platform, offering a number of tools to automate and measure the process.

Last month, Mavrck announced new features for Pinterest, where it’s now an official marketing partner. It also says it’s been doing more to improve measurement and detect fraud — on the fraud side, it promises to analyze a “statistically significant sample” of an Instagram account’s followers, and of the accounts that engage with their content, to determine if they’re bots.

Customers include P&G, Godiva and PepsiCo, and the company says recurring revenue has grown 400 percent year-over-year.

“Everything that we have done at Mavrck this year has been done with the intention to drive the influencer industry forward,” said co-founder and CEO Lyle Stevens in the funding announcement. “Every new capability that we’ve introduced, every partner that we’ve started working with, every influencer behavior that we’ve tracked was part of our mission to help marketers harness the power of content that people trust to drive tangible business value for their brands.”

The new funding comes from GrandBanks Capital and Kepha Partners. A spokesperson said this isn’t a Series B, but rather additional capital raised to support increased demand and channel partnerships.

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Fitbit earnings beat expectations on strength of smartwatch sales

Fitbit is slowly righting its financial ship, courtesy of a successful push into smartwatch category. The wearable company reported a profit (when adjusted for items such as stock-based compensation) thanks to growing sales in the new category.   

Total revenues rose slightly to $393.6 million in the third quarter compared with the same period last year. The company did report a loss this quarter under generally accepted accounting principles (GAAP). But it was rosier than in previous quarters and showed that Fitbit is moving in the right direction. Net losses narrowed considerably to $2.1 million from $113.4 million this time last year. A good deal of the company’s revenue is being driven by the shift to smartwatches, which now comprise around half of Fitbit’s total revenue.

It’s a gamble that’s finally starting to pay off for the company. Fitbit launched its first smartwatch in August of last year. The Ionic was the result of three high-profile acquisitions: Pebble, Coin and Vector. It was an ambitious product that found the company embracing the one bright spot in an otherwise stagnant wearables market.

What felt like an extremely expensive Hail Mary for the company was ultimately bogged down by poor reviews (including one on this site), thanks to poor industrial design, among other issues. In an interview with TechCrunch earlier this year, CEO James Park admitted that the Ionic ultimately wasn’t a mainstream device. “It was a performance-oriented product,” Park said at the time. “That audience is much smaller than a mass appeal device.”

Its followup, the Versa, however, address many of the biggest complaints plaguing the Ionic, and has clearly proven a hit for Fitbit.

This is the first time the company has posted adjusted profitability since Q3 of 2016. Of the 3.5 million wearables it sold this quarter, 49 percent were smartwatches. Fitbit’s combined smartwatch sales currently put it in the number two position in the U.S., behind only Apple. It seems the company’s gamble is beginning to pay off.

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Xiaomi doesn’t want Lyft using its electric scooters

Xiaomi, the electric scooter manufacturer that a handful of the shared electric scooter services in the U.S. (like ones from Uber, Lyft, Spin and Bird) rely on, has sent a cease-and-desist letter to Lyft. In the letter, obtained by TechCrunch, Xiaomi says it did not consent to associate its brand with Lyft.

Xiaomi alleges Lyft has referenced Xiaomi’s brand in its advertisements and other documentation referring to its shared electric scooter business.

“We also do not condone Lyft’s unauthorized modification or retrofitting of our electric scooters for general public use,” Xiaomi wrote in its letter.

If Lyft does not cease to use, purchase and modify its scooters, Xiaomi says it will pursue legal action against Lyft. Xiaomi also demands that Lyft must stop deploying its scooters “that have been modified without our consent in public scooter rentals.”

But Lyft says it has no knowledge of using Xiaomi’s trademarks in its advertising.

“We have no intention of using any other company’s trademarks in advertising our scooters, and are not aware of any instance of having done so with our existing suppliers,” a Lyft spokesperson said in a statement to TechCrunch. “We will address these concerns with them directly. Safety modifications, including slowing scooter speeds, have been made to satisfy local regulatory guidelines.”

Lyft currently operates its shared electric scooter service in Santa Monica, Calif., Washington, D.C. and Denver, Colo.

“Lyft’s modification to any scooters originally manufactured by Xiaomi without our knowledge, participation, or approval undoubtedly exposes Xiaomi to serious legal risks and liabilities for consumer safety and product liability,” the letter states.

But, as mentioned earlier, Lyft is not the only company that uses Xiaomi scooters. Uber, Spin and Bird also use scooters from Xiaomi. Bird, however, has a partnership of sorts with Xiaomi. In May, Bird said it made an exclusive deal with Xiaomi for rights to its supply of scooters for shared services in the U.S. But one scooter executive told TC’s Jonathan Shieber at the time that their company also had a contract with Xiaomi.

TechCrunch has reached out to Uber and Spin to clarify their respective relationships with Xiaomi. I’ve also reached out to Xiaomi and will update this story if I hear back.

In the meantime, you can read the full letter from Xiaomi to Lyft below.

Xiaomi cease-and-desist let… by on Scribd

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Snapchat’s PR sues influencer for not promoting Spectacles on Instagram

Influcencer marketing could get a lot more accountable if Snapchat’s PR firm wins this lawsuit. Snapchat hoped that social media stars promoting v2 of its Spectacles camera sunglasses on its biggest competitor could boost interest after it only sold 220,000 of v1 and had to take a $40 million write-off. Instead Snap comes off looking a little desperate to make Spectacles seem cool.

Snap Inc comissioned its public relations firm PR Consulting (real imaginative) to buy its an influencer marketing campaign on Instagram . The firm struck a deal with Grown-ish actor Luka Sabbat after he was seen cavorting with Kourtney Kardashian. Sabbat got paid $45,000 up front with the promise of another $15,000 to post himself donning Spectacles on Instagram.

He was contracted to make one Instagram feed post and three Stories posts with him wearing Specs, plus be photographed wearing them in public at Paris and Milan Fashion Weeks. He was supposed to add swipe-up-to-buy links to two of those Story posts, get all the posts pre-approved with PRC, and send it analytics metrics about their performance.

But Sabbat skipped out on two of the Stories, one of the swipe-ups, the photo shoots, the pre-approvals, and the analytics. So as Variety’s Gene Maddaus first reported, PRC is suing Sabbat to recoup the $45,000 it already paid plus another $45,000 in damages.

TechCrunch has attained a copy of the lawsuit filing, embedded below, that states “Sabbat has been unjustly enriched and PRC is entitled to damages.” Snap confirms to us that it hired PRC to run the campaign, and that it also contracted a campaign with fashion blog Man Repeller founder Leandra Medine Cohen. And as a courtesy, I Photoshopped some Spectacles onto Sabbat above.

But interestingly, Snap says it was not involved in the decision to sue Sabbat. The debacle brings unwanted attention to the pay-for-promotion deal that brands typically tried to avoid when commissioning influencer marketing. The whole thing is supposed to feel subtle and natural. Instead, PRC’s suit probably cost Snapchat more than $90,000 in reputation.

The case could solidify the need for influencer marketing contracts to come with prorated payment terms where stars are paid fractions of the total purse after each post rather than getting any upfront, as The Fashion Law writes. PRC’s choice to chase Sabbat even despite the problematic publicity for its client Snap might convince other influencers to abide more closely to the details of their contracts. If social media creators want to keep turning their passion into their profession, they’re going to have to prove they’re accountable. Otherwise brands will slide back to traditional ads.


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